Compass, the world's largest caterer, was in turmoil yesterday after being forced to suspend the newly promoted head of its UK division as part of an inquiry into buying practices at one of its most prestigious clients, the United Nations.

City analysts expressed concern about the possible damage to Compass's reputation. The company is already reeling after issuing three profits warnings in a year and shaking out its boardroom.

Compass is a supplier to the United Nations, providing food and water to peacekeepers around the world, but has also been embroiled in controversy about school dinners in British schools.

The catering company's shares were the biggest fallers on the stock market yesterday, losing 10.75p to close at 175p although this was above the 168.5p to which they plunged in earlier trading.

In a statement to the City, Compass said it had suspended Peter Harris, the chief executive of the group's UK and Ireland, Middle East and Africa divisions. The suspension will take place while the law firm Freshfields Bruckhaus Deringer investigates the relationships between the Compass unit Eurest Support Services (ESS); IHC (a firm that helps companies obtain contracts from the UN), and the UN itself.

The news puts further pressure on the out-going chairman, Sir Francis Mackay, and chief executive, Mike Bailey, who have both pledged to leave the firm after pressure from disgruntled shareholders.

Compass had previously admitted that it was cooperating with relevant authorities about an investigation into UN contracting procedures but yesterday's announcement appeared to indicate that the scope of the investigation was widening. The suspension of Mr Harris, who used to run the ESS division until July when he was promoted to his current role, followed reports by Fox News, the US media outlet which has been investigating procurement practices at the UN.

An item on Fox News' website dated October 20 reported an alleged link between Mr Harris and IHC, an intermediary firm that helps companies win contracts from organisations such as the UN. According to Fox News, IHC was sold to Strategic International Alliance, a business where Mr Harris is supposedly a director. The website also quotes Mr Harris as denying any knowledge of the new ownership of IHC and as saying he had "never heard of" Strategic International Alliance.

Even though Compass has told the City that its UN contracts are worth just 0.5% of group revenue, analysts and investors remain concerned about the risk.

"The suspension of the chief executive of the group's UK and Ireland, Middle East and Africa divisions raises significant questions, in particular reputational damage to Compass," said Panmure Gordon analysts. "In our opinion there is a lack of control in Compass and growth is pursued at any cost. It is difficult to have confidence in the board. Investors should continue to sell."

Analysts at Oriel Securities were also concerned about reputational risk. "The contract with the UN is worth some 0.5% of group revenues - about £50m - so not a big impact but reputationally very damaging if Compass were found to have secured contracts using unacceptable business practices," the analysts said.

In recent months, investors have secured the promised departures of both the chairman and chief executive. The chairman is to be replaced by Centrica's chief executive, Sir Roy Gardner, next year while Mr Bailey will go next year. Sir Roy joined the board this month.

Yesterday the American-based value investor Brandes appeared on the company's share register with a 4% stake.

Industry sources, though, believe that Mr Harris was regarded as candidate to take over as chief executive from Mr Bailey. While he is suspended, his role running Britain and Ireland, Middle East and Africa divisions will be taken over by Gary Green, who runs the Americas division.